British Truss sacks Treasury chief

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LONDON — British Prime Minister Liz Truss sacked her Treasury chief on Friday and reversed course on much of her economic plan to cut taxes after weeks of turmoil in financial markets.

But the market response was muted and the political reaction to what many saw as panic attacks left Truss’s credibility in tatters after just six weeks in office.

At a hastily organized news conference on Friday, Truss said she was acting to “reassure markets of our fiscal discipline” by dropping her promise to scrap a planned corporate tax hike.

Earlier, she fired her close friend Kwasi Kwarteng as head of the Treasury and replaced him with Jeremy Hunt, a long-serving lawmaker who previously held three posts as Cabinet minister.

Truss is trying to restore confidence and rebuild credibility with international investors and members of her own party after the “mini budget” she and Kwarteng unveiled three weeks ago sparked political and economic turmoil, even arousing rare criticism from the International Monetary Fund.

The government’s September 23 announcement that it planned to cut taxes by $50 billion without detailing how it would pay them or offering an independent analysis of the impact on public finances raised fears that government borrowing could reach unsustainable levels.

This caused the pound to plunge to a record low against the dollar and forced the Bank of England to intervene twice to avert a wider economic crisis.

Truss has now reversed about $22 billion of the originally planned tax cuts. But her brief and pessimistic press conference on Friday proved unlikely to have reassured Truss’ Conservative Party that she remains in control.

“I think she has just confirmed that she is not the right person for the job,” said Tim Bale, professor of politics at Queen Mary University of London. “I don’t think it communicated the kind of confidence the country needs right now.”

Despite backtracking on much of her agenda, Truss clung to the idea that her policies were what the country needed to spur economic growth.

She also avoided repeated questions about why she should remain in office when Truss and Kwarteng were also responsible for the government’s economic plan and the fallout it triggered.

“I’m absolutely determined to deliver what I promised,” Truss said.

UK MARKETS STILL TROUBLED

Despite Truss’s best efforts, Friday’s decision failed to fully appease investors: the pound fell again and the Bank of England’s recent gains in buying government bonds through Friday have been cancelled.

The pound was more than 1% weaker against the dollar on Friday, after rising more than 2% on Thursday. The British currency rose slightly after Truss’ announcement, but weakened again after his press conference.

Yields on government bonds, an indicator of government borrowing costs, rose, with 10-year yields at 4.2%, after falling to 3.9% earlier in the day.

While signs of a government pullback have offered markets some relief this week, it leaves the government’s economic program in tatters and Britain without a clear path as inflation is at its highest level in four decades and household budgets are squeezed by rising energy prices. bills, higher mortgage rates and other rising costs.

Data released this week showed the UK economy contracted unexpectedly in August, adding to expectations that Britain is heading into a recession.

“We could turn around, but what else?” said Jane Foley, strategist at Rabobank Group of Netherlands. “What can a chancellor do now to pull the UK economy out of the hole it is in?”

The pound was trading below $1.12, lower than before the September 23 government policy statement. Bond yields were still significantly higher than they were before the statement.

The pound is still a vulnerable currency, Foley said. “While we may have pulled out of the abyss,” she added, “we are not in a positive position.”

The next big test for Truss will come on Monday when trading resumes in financial markets. The Bank of England on Friday ended its emergency intervention to stabilize long-term bond prices and protect pension funds.

“Whether or not she remains prime minister, her whole agenda now, her ability to pursue her political project, if you will, is really out of her hands,” said Jill Rutter, a senior fellow at the Institute for Government, a London-based think tank.

“Its fate is now in the hands of the markets,” added Rutter.

Information for this article was provided by Eshe Nelson of The New York Times, and Danica Kirka and Jill Lawless of The Associated Press.

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